Question

Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2021, the company transferred $800,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 90% of the factored amount and retains 10%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 4% fee (4% of the total factored amount). Samson estimates the fair value of the last 10% of its receivables to be $60,000.
Required:
Prepare the journal entry for Samson Wholesale Beverage for the transfer of accounts receivable on April 30, assuming the sale criteria are met.

Answer 1

Answer:

Debit Cash for $720,000

Debit Receivable from factor for $28,000

Debit Loss on sale of receivables for $52,000

Credit Accounts receivable for $800,000

Explanation:

From the question, the following can first be calculated:

Cash = Accounts receivable * Percentage remitted by Milpitas = $800,000  * 90% = $720,000

Receivable from factor = Estimated fair value of the last 10% of receivables - 4% of the total factored amount = $60,000 - (4% * $800,000) = $60,000 - $32,000 = $28,000

Loss on sale of receivables = Accounts receivable - Cash - Receivable from factor = $800,000  - $720,000 - $28,000 = $52,000

The journal entry for Samson Wholesale Beverage for the transfer of accounts receivable on April 30, assuming the sale criteria are met will look as follows:

General Ledger                                  Debit ($)              Credit ($)    

Cash                                                    720,000

Receivable from factor                         28,000

Loss on sale of receivables                 52,000

       Accounts receivable                                               800,000

(To record the transfer of Accounts receivable.)